Law and order in Putin's Russia

November 24, 2003

Mikhail Khodorkovsky--the richest man in Russia and former head of the oil giant Yukos--apparently will spend this holiday season in jail, awaiting trial on charges of tax evasion and fraud. He was denied release two weeks ago.

That has shaken Russian business leaders and touched off a great debate. Is Khodorkovsky a victim of politically motivated charges brought by Russian President Vladimir Putin's government to discredit the billionaire businessman turned political financier, philanthropist and critic of the state?

Or is he just a garden-variety thief?

It is plausible that Khodorkovsky is guilty of breaking the law. In the 1990s privatization frenzy when Russia's natural resources were sold off--Russia's robber baron era--the laws were violated or widely ignored. (Some were ignored just to survive. Full compliance with corporate tax laws, for example, meant some companies would have had to pay more than 100 percent of their profits.) The old laws are gone. The new laws are still being written.

When Putin took over the country nearly four years ago, after former President Boris Yeltsin's surprise New Year's Eve resignation, he pledged to revive the economy, guarantee private property rights, strengthen the rule of law and clean up the culture of economic corruption that has been a hallmark of post-Soviet Russia. He has attempted to convince business leaders that the prosecution of Khodorkovsky is motivated only by that effort.

But the timing and the choice of targets is curious. Khodorkovsky has used some of his wealth to finance opposition political parties, as well as philanthropic organizations. He has used his influence at times to block Putin's legislative agenda. Some believed Khodorkovsky might make a run at the presidency.

His arrest and coming trial certainly squash his political efforts--and send a reminder that Putin is firmly in charge.

All this draws some attention that Putin might not want, starting with the unsettled nature of basic rights in Russia. A dozen years after the collapse of communism, it has yet to fulfill its aspirations for free markets and free politics.

What does the rule of law mean in a state where Kremlin-imposed secrecy about process and policy is almost as much the norm as it was in Soviet times? How secure are property rights in the new Russia? Is the state trying to reassert control over private business? Where are the checks and balances that limit governmental abuses of power? How Russia answers those questions will, in large part, dictate its future course.

Deputy Economic Trade and Development Minister Arkady Dvorkovich chilled foreign investors recently when he starkly warned that "the risks that past sins will be re-examined exists, and this risk should be included in all (investment) projects in Russia."

That would mean almost no investment, no deal, no merger in Russia would be safe because it could be undone in an instant if the state chose to "re-examine . . . past sins." That would close off a badly needed spigot of foreign investment for an economy that is still far too dependent on revenues from oil and other natural resources.

Putin has reassured investors there is no risk of that occurring. But there is no evidence to back him up. "The trouble is that all investors have to go on is Putin's word," the Moscow Times pointed out in a recent editorial.

Perhaps the case against Khodorkovsky will prove so damning that Russians will believe his alleged sins couldn't be ignored. But right now it seems that the prosecution of a powerful political foe of ex-KGB agent Putin only enhances the conviction that even in the new Russia, old habits die hard.